Incidental Bequests and the Choice to Self-Insure Late-Life Risks

TitleIncidental Bequests and the Choice to Self-Insure Late-Life Risks
Publication TypeJournal Article
Year of Publication2018
AuthorsLockwood, LM
JournalAmerican Economic Review
Pagination2513 - 2550
Date PublishedJan-09-2018
ISSN Number0002-8282
KeywordsAnnuitization, Healthcare, Insurance

Despite facing significant uncertainty about their lifespans and health care costs, most retirees do not buy annuities or long-term care insurance. In this paper, I find that retirees’ saving and insurance choices are highly inconsistent with standard life-cycle models in which people care only about their own consumption but match well models in which bequests are luxury goods. Bequest motives tend to reduce the value of insurance by reducing the opportunity cost of precautionary saving. The results suggest that bequest motives significantly increase saving and significantly decrease purchases of long-term care insurance and annuities.

Short TitleAmerican Economic Review
Citation Key9820